What Does Chemtura Have That Dow Wants?

Dow Chemical (DOW) will not purchase all of Chemtura (NYSE:CEM) as rumored, but rather look for an acquisition of portions of it.

Dow has said

our strategy involves growing the Company's performance portfolio - both through organic growth and through carefully targeted acquisitions - while, at the same time, lightening our basics portfolio - principally through joint ventures. And we've made no secret of the fact that, right now, we're looking at dozens of opportunities and potential ventures around the world to advance that strategy. Some are in an early assessment phase, others are further advanced.

So, what does Chemtura have that Dow could want? For starters, it is currently a very willing seller. Earlier this year the company put itself up for sale, but the auction failed. That does not mean it is still not for sale, as Trian Fund Management LP, run by activist hedge fund investor Nelson Peltz, sported a 4% stake in the company as of June and has his firm's co-founder on Chemtura's board. Pelts's MO is to sell off assets of companies he invests in like he did with his investment in Wendy's (NYSE:WEN) and the Tim Horton's (NYSE:THC) chain sale. Additionally, Apollo Management, the private equity firm that owns nearly 2 percent of the company was rumored to be the lead bidder in the Chemtura auction before dropping out.

Chemtura does have a specialty chemical business growing profits at 35% YOY (year over year) and a crop protection business growing profits at 14% YOY. Dow has been aggressive in both areas in both acquisitions and joint ventures like the recent Monsanto (NYSE:MON) announcement. Neither segment will be a large contributor to earnings (sales of roughly $600 million in the first 6 months of 2007) but at current level could be had for a song and would be accretive to earnings almost immediately (one of CEO Liveris's determinant factors). Q3 earning come out 11/2.

It would not be a blockbuster deal for Dow, but one that would add steady profits in growing areas and - best of all - could be had at very reasonable prices.